Tax filing time has arrived and so have the typical string of articles describing how the mega-corp. du jour is paying $0 in taxes despite billions in revenue. The truth behind why a company, in this case Amazon, has no tax liability often ends up being less salacious than the headlines. The recent Bloomberg article “Amazon Doesn’t Plan to Pay the IRS Anything This Tax Season” highlights items such as the R&D tax credit, Net Operating Losses, and preferential stock option treatment as items that enable Amazon (and many others) to dramatically reduce their tax liability.
The less obvious story behind these stories relates to why some companies are outliers in terms of utilizing the tax code to the fullest. Through nearly 15 years of working with all types and sizes of companies to secure and defend the R&D tax credit, I’ve identified 3 key factors which enable some companies to benefit from tax efficiency while others look around wondering “why not us.”
Willingness to invest– As the trite adage goes, “it takes money to make money”. When it comes to tax efficiency, a willingness to hire professionals with highly specialized expertise goes a long way. While the expertise typically does not come cheap, another trite adage tells us “you get what you pay for”. In any scenario the professional in question should be able to illustrate in black and white the return on investment of their expertise.
Ability to trust the process – When you have hired the right expert, stand back and let them prove why you hired them in the first place. Of course, they will need input along the way and some oversight, but successful companies know how to trust the team and understand that the process works.
Tolerance for gray areas – Successful companies don’t always (or usually) operate in black and white. Frequently they are so successful because they understand the gray areas are where they can really excel. Building the right team and then trusting that team enables them to benefit from business decisions smaller companies are unwilling to make.
Clearly the above factors are not all encompassing. Smaller, resource constrained companies can feel overwhelmed with adding another “project” to their plate. However, with a small time investment hiring the right expert and then allowing them to go to work, any size company can benefit from advanced tax planning strategies…especially the R&D tax credit.